Are Bitcoin Futures Responsible for the Bearish Market?
Yukio Noguchi, a well-respected Japanese economist, believes the launch of Bitcoin Futures in 2017 may have been responsible for the destruction of Bitcoin’s 2017 bull rally and may have led to Bitcoin’s 2018 bearish market.
Bitcoin Futures and its Impact On the Bitcoin Rally
Bitcoin futures enables traders to speculate on what the price of a Bitcoin token is in the future. While traders can bet on the price and profit accordingly, Bitcoin futures allow investors to bet against Bitcoin and trade off cryptocurrency without owning any. The Conversation reported that, unfortunately, Bitcoin futures could, therefore, reduce the overall demand for Bitcoin and push its prices down.
According to Fortune, Bitcoin Futures began on December 20, 2017, when the CBOE Futures Exchange opened Bitcoin up for trading. Noguchi pointed out in the Japanese Diamond Weekly that, “because it’s now possible to trade on BItcoin futures, you’ll never see a rapid surge again.”
Bitcoin’s market capitalization has fallen significantly since its all-time high in December 2017 of almost $20,000 per token. According to Coinmarketcap, Bitcoin is currently sitting at $6,493.88 and has therefore lost over two-thirds of its value since mid-December. However, despite the steep price decline, Bitcoin is still worth over ten times what it was worth in 2015.
Noguchi was however not the only economist that saw the short-term impact of Bitcoin Futures on the Bitcoin market. In May, the economists at San Francisco’s Federal Reserve Bank also expressed similar opinions. They released a paper known as “How Futures Trading Changed Bitcoin Prices” which mentioned that “the rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is a consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.”
While many traders are left wondering whether the price would return to their highs in 2017, Fortune noted that most economists attribute the ftures market as the primary reason for Bitcoin’s decline in prices as the creation of Bitcoin futures allowed pessimistic investors to bet against the industry.
Short-Term Harm For Long-Term Gains
While Bitcoin futures may have a damaging impact on Bitcoin’s market in the short run, Ali Sheikh, a cryptocurrency enthusiast and writer on masterthecrypto argued that it might provide long-term gains for the industry.
Sheikh argued that while it’s uncertain whether Bitcoin Futures represents the end of Bitcoin Mania or signals the beginnings for the digital token, other factors outside of Bitcoin Futures will have more of an impact on the price of Bitcoin. Furthermore, he mentioned that short-term players would be at a disadvantage compared to long-term HODLers.
In Sheikh’s article, he analyzed historical data concerning precious metals like Gold, Silver, and platinum and looked at the price of these metals after a Futures equivalent was introduced and launched on the Chicago Mercantile Exchange Group (CME).
Unlike Noguchi and other economists, Sheikh believes Bitcoin Futures may cause the price of Bitcoin to shift up or down initially. Bitcoin’s price is, however, not just dependent on Bitcoin Futures. It is rather a variety of other factors like community politics, institutional investment, government regulations, competing cryptocurrencies, and potentially Bitcoin conferences that have an overall impact on the pioneer cryptocurrency’s price action.